Deck 3: Recording Transactions

Question 1

A two year insurance policy paid for on l January can initially be recorded in an asset account called:

A) prepaid insurance.
B) insurance payable.
C) unearned insurance.
D) debtors.

Answer 1

A

Question 2

A party who has provided goods or services to the entity to whom the entity owes money is called a:

A) debit.
B) debtor.
C) creditor.
D) credit.

Answer 2

C

Question 3

Which of the following statements is true?

A) The entries to account for GST are regarded as internal transactions.
B) GST collections is an asset account.
C) If the GST inclusive price of a package of books is $1200 the GST component is $120.
D) In the income statement income and expenses are recorded net of GST.

Answer 3

D

Question 4

The source document for a cash sale could be a:

A) purchase order.
B) credit card slip.
C) cheque butt.
D) credit note.

Question 5

Which of these events would be recorded by accountants?

A) An employee receives a promotion.
B) An employee hurts themselves at work in the course of their duties.
C) An employee resigns.
D) An employee is paid by being given a computer instead of their normal wages.

Question 6

The following transactions relate to the Melbourne Orchid Club, which of them is regarded as an internal transaction?

A) Sale of plants.
B) Payment of office wages.
C) Depreciation charged on the club's trailer.
D) Collection of membership subscriptions.

Question 7

What is the source document for a credit sale?

A) Tax invoice
B) Credit note
C) Receipt
D) Cheque

Question 8

Why is the receipt of an order from a customer not regarded as a transaction?

A) Because an exchange between the entity and the customer has not yet occurred.
B) Because the computer cannot record it.
C) Because the customer might cancel the order.
D) The receipt of an order is regarded as a transaction.

Question 9

A machine purchased by a business for use in producing income can be recorded in an asset account called:

A) drawings.
B) debtors.
C) plant and equipment.
D) buildings.

Question 10

Balance sheet accounts are of three basic types, asset, liability and:

A) income.
B) equity.
C) expense.
D) bank.

Question 11

The transactions below are from the records of Templestowe Picture Framers, the internal transaction is:

A) cash sale.
B) paid monthly rent on premises.
C) credit sale.
D) recorded depreciation on shop fixtures and fittings.

Question 12

GST collected by a business on the sale of its goods and services is stored in a liability account called:

A) GST outlays.
B) GST collections.
C) creditable acquisitions.
D) input credits.

Question 13

In accounting ABN stands for:

A) Annual Business Number.
B) Account Balance Number.
C) Australian Bank Number.
D) Australian Business Number.

Question 14

What are the two basic types of income statement accounts?

A) Asset and liability
B) Income and expense
C) Asset and expense
D) Income and liability

Question 15

A separate ledger account is maintained for each:

A) business transaction.
B) day of business.
C) item that appears in the financial reports.
D) journal entry.

Question 16

In the expanded version of the accounting equation income and expenses are sub-groupings of:

A) assets.
B) equity.
C) liabilities.
D) bank.

Question 17

A regular withdrawal of cash by the owner from the business is treated as a reduction in equity and is recorded in an account called:

A) creditors.
B) debtors.
C) drawings.
D) mortgage.

Question 18

Financial reports prepared between the regular year-end reports are called:

A) interim reports.
B) audited reports.
C) consolidated reports.
D) trial balances.

Question 19

Which of these events would not be recorded by accountants?

A) Received an order from a customer.
B) The owner paid his daughter's school fees from the business bank account.
C) Credit sale.
D) Depreciation on motor vehicles calculated at the end of the firm's financial year.

Question 20

In Accounting GST stands for:

A) General Service Tax.
B) Goods and Services Tax.
C) Government Services Tax.
D) General and Service Transactions.

Question 21

Which is the correct statement concerning a chart of accounts?

A) The accounts are listed in alphabetical order.
B) It is drawn up at the commencement of a business.
C) It is similar for most businesses.
D) It is a list of accounts with their current balances.

Question 22

Select the account types for these items:
$\bullet$ Repairs and maintenance
$\bullet$ Accounts receivable
$\bullet$ Drawings
$\bullet$ Wages

A) Expense, asset, equity, equity
B) Asset, liability, equity, equity
C) Expense, asset, equity, expense
D) Expense, liability, asset, expense

Question 23

The term used in the Framework for the Preparation and Presentation of Financial Statements for income which arises in the course of the ordinary activities of an entity is:

A) revenue.
B) gain.
C) fees.
D) profit.

Question 24

Which of these is incorrect?

A) The normal balance for an asset is a debit.
B) The normal balance for a liability is a credit.
C) The normal balance for equity is a debit.
D) The normal balance for income is a credit.

Question 25

The accounting entry to record the payment of a liability is which of the following?

A) Debit an asset account and credit a liability account
B) Debit a liability account and credit an asset account
C) Debit an equity account and credit a liability account
D) Debit a liability account and credit an equity account

Question 26

What is the correct order of the steps in the accounting cycle?
1) Entries are made in the journal
2) A business transaction occurs
3) A trial balance is prepared
4) Entries are made in the ledger

A) 2, 4, 1, 3
B) 2, 1, 4, 3
C) 3, 2, 1, 4
D) 2, 4, 3, 1

Question 27

A chart of accounts is a:

A) planning device used by management to anticipate information flows through the accounting system.
B) list of accounts receivable.
C) chart showing the organisational structure of the firm.
D) plan of the ledger listing account titles and their related numbers.

Question 28

In order to provide timely information for decision-making the life of the business is divided into arbitrary time periods of equal length called:

A) business cycles.
B) accounting periods.
C) time periods.
D) operating cycles.

Question 29

A chronological record of all the transactions of an entity is provided in the:

A) ledger.
B) journal.
C) balance sheet.
D) trial balance.

Question 30

A credit entry is made to:

A) decrease an asset, increase a liability, and decrease equity.
B) decrease an expense, increase income, and increase equity.
C) increase an asset, decrease a liability, and decrease equity.
D) decrease an asset, decrease a liability, and increase equity.

Question 31

If a transaction causes an equity account to increase, which of these related effects may also occur?

A) An increase of an equal amount in a liability account.
B) An increase of an equal amount in an asset account.
C) A decrease of an equal amount in an asset account.
D) An increase of an equal amount in another equity account.

Question 32

A listing of the complete ledger account titles and their related numbers is known as a/an:

A) general ledger.
B) master file.
C) index.
D) chart of accounts.

Question 33

A party to whom the entity owes money for goods or services provided to the entity is called a:

A) creditor.
B) debtor.
C) debit.
D) credit.

Question 34

GST paid by a business on the purchase of its goods and services, and for which a reduction of GST collected will be claimed from the tax department, is stored in an account called:

A) GST holdings.
B) GST collections.
C) creditable acquisitions.
D) input credits GST outlays.

Question 35

A collection of all the individual accounts for a particular business is referred to as:

A) the general ledger.
B) the master file.
C) MYOB.
D) the chart of accounts.

Question 36

The true statement concerning the accounting period is:

A) the length of the accounting period varies with the needs of users.
B) the accounting period originates from the accounting equation.
C) must be at least 6 months long.
D) depends on which country the business is located in.

Question 37

A deposit received in advance by Adelaide Co for services not yet supplied can be initially recorded by Adelaide in a liability account called:

A) sales.
B) accounts payable.
C) unearned income.
D) expenses payable.

Question 38

Select the account types for these items:
$\bullet$ Prepaid insurance
$\bullet$ Mortgage
$\bullet$ GST Collected
$\bullet$ Light and power

A) Expense, liability, liability, equity
B) Asset, equity, asset, expense
C) Asset, liability, liability expense
D) Expense, liability, asset, liability

Question 39

The system of accounting where each transaction effects two or more accounts and the sum of the debit entries equals the sum of the credit entries is called:

A) single entry accounting.
B) double-entry accounting.
C) twin accounting.
D) debit and credit accounting.

Question 40

The double-entry system requires how many of the following to be true?
I) At least one account should be debited and one account credited
Ii) Credits should always be entered into the journal before debits
Iii) The accounting equation should stay in balance

A) 0
B) 1
C) 2
D) 3

Question 41

Quinn paid $440, including GST, for advertising. The entry to record this transaction is which of the following?

A) DR Advertising $440; CR Cash $440
B) DR Advertising $440, DR GST outlays $44; CR Cash $484
C) DR Advertising $440; CR GST outlays $40, CR Cash $400
D) DR Advertising $400, DR GST outlays $40; CR Cash $440

Question 42

Which of these errors would be detected by a trial balance?

A) A cash sale was recorded in the sales account as $237 instead of $273 but was correctly recorded in the bank account.
B) Office salaries were recorded as office expenses.
C) The sales assistant pocketed the cash from a cash sale and did not ring it up on the register.
D) Purchase of inventory on credit was recorded as a debit to the plant and equipment account and a credit to creditors.

Question 43

Which statement relating to the general journal is incorrect?

A) The debit and credit effects of each transaction are shown together.
B) It is compiled using the information taken from the entities general ledger.
C) It provides a record of transactions in date order.
D) It is referred to as a book of original entry.

Question 44

What is the correct order in which the steps for analysing transactions are carried out?
I Decide what accounts are affected.
Ii Decide if the account type is increasing or decreasing.
Iii Apply the rules of debit and credit.
Iv Decide on the account type.

A) i, ii, iii, iv
B) iv, ii, i, iii
C) i, iv, ii, iii
D) i, ii, iv, iii

Question 45

Select the entry that correctly records the receipt by Speedy Window Cleaning of $900 in cash for window cleaning services provided. Ignore GST.

A) DR bank $900; CR income earned $900
B) DR income earned $900; CR bank $900
C) DR bank $900; CR debtors $900
D) DR equity $900; CR income earned $900

Question 46

Machinery is purchased on credit for $16 000 plus GST. The general journal entry to record this transaction is which of the following?

A)
B)
C)
D)

Question 47

A trial balance will disclose which of these errors?

A) Recording the same transaction twice.
B) Recording a credit as a debit.
C) Recording an amount on the correct side of the wrong account.
D) Failing to record a transaction.

Question 48

If a sole proprietor who owns an electrical store takes home a DVD player for his own personal use it would be considered to be:

A) an expense because an asset has been given away.
B) an increase in equity and a decrease in assets because the proprietor now owns the DVD player.
C) a decrease in assets and a decrease in equity because by taking the DVD player the owner has made a drawing from the business.
D) an increase in assets and an increase in equity.

Question 49

On 15 May Osaka paid $715 cash for an 18-month insurance policy including 10% GST. Which of the following is the general journal entry to record the payment?

A)
B)
C)
D)

Question 50

On 20 June Yin repaired Yan’s computer and charged her $660 cash including GST. The general journal entry to record the transaction is:

A)
B)
C)
D) None of the above

Question 51

Select the entry which correctly records the purchase of a building for $300 000 financed by a $100 000 cash deposit with the balance payable via a 20 year, 8% mortgage. Ignore GST.

A) DR buildings $100 000; CR bank $100 000
B) DR buildings $300 000; CR bank $300 000
C) DR buildings $300 000; CR bank $100 000; CR mortgage $200 000
D) DR buildings $300 000; CR capital $300 000

Question 52

Which statement relating to a trial balance is incorrect?

A) A trial balance may be prepared at any time to test the equality of debits and credits in the ledger.
B) A trial balance reports the financial position of a business.
C) The fact that the sum of the debit column equals the sum of the credit column does not guarantee that no errors have been made in the ledger.
D) A trial balance is a list of all the accounts in the ledger with their current balances.

Question 53

The bookkeeper recorded wages for the month as a debit to the Sales account rather than as a debit to wages expense. This error will result in:

A) no effect on profit of the period.
B) understated liabilities at the end of the period.
C) understated assets at the end of the period.
D) overstated profit for the period.

Question 54

The accounting entry when income is earned on credit is which of the following?

A) Debit cash, credit income
B) Debit accounts receivable, credit income
C) Debit income, credit accounts payable
D) Debit accounts payable, credit income

Question 55

Select the entry that correctly records the purchase by Speedy Window Cleaning of 15 months worth of cleaning supplies from Southern Cleaning. The purchase is for cash and the invoiced amount is $1500. Ignore GST.

A) Debit cleaning supplies expense $1500; credit equity $1500
B) Debit bank $1500; credit cleaning supplies asset $1500
C) Debit cleaning supplies asset $1500; credit bank $1500
D) Debit bank $1500; credit cleaning supplies expense $1500

Question 56

Speedy Window Cleaning paid $120 of advertising for the month with Cheque No. 000221. Ignore GST. Which of the following reflects the effect on the accounting equation?

A) Decrease in equity of $120; increase in assets of $120.
B) Decrease in equity of $120; decrease in assets of $120.
C) Increase in assets of $120; increase in liabilities of $120.
D) Decrease in assets of $120; increase in equity of $120.

Question 57

Happy Harry requires his customers to pay for their orders six weeks before shipping the goods. How should the cash receipts be recorded by Harry?

A) Debit bank, credit an asset account
B) Debit bank, credit an expense account
C) Debit bank, credit an liability account
D) Debit bank, credit an income account

Question 58

J. Wood performed carpentry services for $7500. He received cash of $5000 with the balance to be received within 28 days. Ignoring GST, the transaction is recorded as which of the following?

A) DR Cash $5000; DR Accounts receivable $2500; CR Income earned $7500
B) DR Income earned $7500; CR Cash $5000; CR Accounts payable $2500
C) DR Cash $7500; CR Equity $7500
D) DR Cash $5000; DR Equity $2500; CR Income earned $7500

Question 59

A firm repays $4000 of an existing bank loan. The transaction is recorded as which of the following entries?

A) DR Bank loan $4000; CR Owner's capital $4000
B) DR Cash at bank $4000; CR Accounts receivable $4000
C) DR Cash at bank $4000; CR Bank loan $4000
D) DR Bank loan $4000; CR Cash at bank $4000

Question 60

A __________________ provides a complete record, in one place, of each transaction in date order.

A) ledger
B) trial balance
C) income statement
D) general journal

Question 61

A list of ledger accounts and their balances is called a:

A) chart of accounts.
B) listing.
C) general ledger.
D) trial balance.

Question 62

The GST is a tax that is levied at the rate of ______ on the sale of most goods and services. It was introduced in Australia on July 1 2000.

A) 20%
B) 5%
C) 15%
D) 10%

Question 63

Select the entry that correctly records the receipt by Speedy Window Cleaning of $770 (including GST) collected from its customer Alan Lim for goods previously sold to him on credit.

A) Debit bank $770; credit income earned $700; credit GST collections $70
B) Debit debtors $770; credit income earned $700; credit GST collections $70
C) Debit debtors $770; credit bank $770
D) Debit bank $770; credit debtors $770

Question 64

A trial balance is prepared to:

A) act as a link between the journal and the ledger.
B) determine profit or loss.
C) verify the equality of debit and credit postings in the ledger.
D) act as an index to the ledger.